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Wednesday, January 22, 2014

UK unemployment rate drops – boom?

Like that of the US, the UK’s unemployment rate took a plunge down to
7.1%. Added to the news that the IMF has upgraded its forecast for UK
growth to 2.4% for this year, all the talk is of sustained growth for
the UK economy over the next few years. But a quick glance at the
unemployment data does suggest caution in that optimism. Sure, the
official unemployment rate is plunging, but it is still well above
pre-crisis levels (some 2% pts.)
And as I have discussed before in previous posts (http://thenextrecession.wordpress.com/2013/09/13/uk-underemployment-and-economic-recovery/),
much of this reduction has been at the expense of a fall in wages.
Employers have kept staff by holding down wage increases and switching
staff onto temporary contracts (zero hours) and part-time work. Average
weekly earnings are still way below inflation.

Most interesting, as in the US, many people who want to work have
given up looking and either gone back to college, working in the ‘black
economy’ or just stayed at home (see my post,http://thenextrecession.wordpress.com/2013/12/05/the-uks-great-autumn-recovery/).
The UK labour participation rate (% working of those working age) has
fallen sharply since the beginning of the crisis in 2008 and so about 2%
pts of the drop in the official unemployment rate can be explained by
people just leaving the workforce.

Until the capitalist sector begins to invest in new equipment and
plant in earnest, we cannot really say that the UK economy is achieving
‘lift-off’. Up to now, the pick-up in growth has been driven by rising
house prices (property boom), ultra-low interest rates and cheap credit
and by a relative easing off on austerity by the government. All these
three factors are likely to alter for the worse this year and next.
That’s the test for the UK capitalist sector, still facing relatively
low levels of profitability. The large firms continue to hoard cash and
the small firms cannot borrow to invest.